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SWIFT London Forum18 report: IP is a technical challenge & gpi project is growing


The challenge of implementing instant payments (IP) at a bank is mainly a technical one, according to almost two thirds of attendees at a dedicated conference session on the topic at SWIFT’s London Business Forum 2018 at Tobacco Dock, reports Neil Ainger.

The IP presentation on 24 April from Carlo Palmers, Head of Instant Payments at SWIFT, asked the hundred-odd attendees of the IP session at SWIFT’s London Forum to vote on:

Q1. What are the major challenges to implementing instant payments?  

  • 62% Technical challenges, such as integration, alignment with compliance activities, etc
  • 19% No business case
  • 12% Political uncertainty (i.e. impacting cross-border operation, such as Brexit, etc).

The ‘no business case’ finding was perhaps surprising, unless it was reflective of a large number of corporate banking representatives in the audience where many see the present EUR15,000 limit on transactions using the single euro payments area (SEPA) instant credit transfer (SCT Inst) scheme in Europe as a limiting factor in its corporate adoption. For the retail bank it’s more of a hygience factor that is necessary in retaining customer bases.

Overlay services in terms of tracking services, liquidity monitoring, mobile options and so forth will likely be the business case as banks decide how best to use the new eurozone ‘rail’ provided. Many UK attendees will know this thanks to the once pioneering UK Faster Payments Service (FPS) which is now undergoing a technology refresh under the auspices of the UK’s New Payment Systems Operator (NPSO) as it connects to the continental scheme, introduces ISO20022 messaging and so on.

The other question asked of the SWIFT London audience of payment professionals at the trade show was:

Q2. How will you handle the need for the orchestration of instant payments?

  • 44% Don’t know
  • 19% Use current payment application or connection (such as FPS in the UK for instance, the domestic ACH in the country)
  • 19% Use a SWIFT product.

The other answers, in single figures, were use a third-party vendor solution or build an in-house bank solution. The latter is increasingly rare as the trend in the industry is towards using externally developed processing software and connectivity options. The ‘don’t know’ finding is surprisingly high, but it is still relatively early days in the adoption of SCT Inst.

The rest of the presentation was taken up by SWIFT’s Palmers outlining the organisation’s IP connectivity strategy, which he said would prioritise the reuse of existing SWIFT’s technical elements where possible on IP volumes, “so you can do all your correspondent banking on SWIFT”. In addition, it will offer a gateway to multiple clearing and settlement mechanism (CSM) processing platforms; and its solution will be “future-proofed”, claimed Palmers. Other rival options are naturally available.

One of the multiple CSMs that SWIFTNet Instant caters for is EBA Clearing’s RT1 platform. Katja Heyder, Head of User Relations at EBA Clearing, was also part of the IP session at the 2018 SWIFT London Forum. She outlined how it has “reached 12,000 payments a day, peaking at 15,000 recently” on its pan-European CSM which recently surpassed 1m transactions. Usage in the “Baltic states” was particularly prevalent, she said, before adding that its “next release in November 2018 will mean liquidity functionality will come on stream”.

The European Central Bank’s (ECB) TIPS platform will also come on stream in November this year, which some banks may prefer to connect to instead as a processing platform offering pan-European ‘reach’ across the 34 SEPA nations in the SCT Inst scheme. “We will offer a connection there for instructing parties,” said Heyder.

SWIFT’s Palmers addressed the issue of how banks might process SCT Inst transactions across borders, commenting that: “Most banks rely on local automated clearing houses (ACHs) to reach other banks domestically”, but when it comes to achieving cross-border reach some will:

  • Look to local ACHs to deliver cross-border functionality
  • Some banks may do it themselves
  • Rely on platforms such as TIPS and/or RT1, and their instructing party functions.

SWIFT gpi project
The other cross-border payment option much discussed at the show, although not instant in nature, was SWIFT’s global payments innovation (gpi) project. This is a quasi-new standard enabling cross-border payment tracking and data-rich services akin to what a logistics company would offer. It retains its information regardless of the domestic infrastructures it travels over, due to accommodating partnership agreements, and thereby offers a global payment messaging solution that doesn’t constantly need reformatting. However, it is limited to same day operation in the main at present. Although 50% of the $100bn worth of transactions so far processed by the 160 participating financial institutions (FI) have been delivered in 30 minutes, explained SWIFT at the show, as it sought to promote usage of the quasi-new standard.

HSBC became the latest to join the gpi service this week. There are also possible spin-offs for near real-time regional operations, as recently demonstrated in Asia-Pacific where a gpi Asia project is currently being explored.

During the IP session he chaired at the 2018 London Forum, SWIFT’s Palmers discussed the possibility of gpi linking instant payment domestic schemes together end-to-end globally in the future. Whether the industry goes down this route must remain open to debate as it gives one organisation a lot of power, and ISO20022 messaging can in and of itself perhaps achieve this if it is properly aligned.

Palmers did admit that technically it would be “difficult” to introduce such an end-to-end global gpi IP linking solution, but intriguingly he added: “We should know more about its potential in time for SWIFT’s Sibos 2018 show this Autumn.” Look out for an update then in Sydney, Australia, later in the year.

Neil Ainger, Editor, InstaPay


Author: Neil Ainger